3rd UPDATE: Margin Calls Cost Green Mountain Chairman, Director

--Latest setback for company that has lost nearly half its value over past week

(Updates with additional details in paragraph five and 11.)

By Corrie Driebusch

Of DOW JONES NEWSWIRES

NEW YORK -(Dow Jones)- Green Mountain Coffee Roasters Inc.'s (GMCR) recent problems claimed two more victims Tuesday when its long-time chairman and lead director were forced to reduce their roles at the company after each got hit with margin calls.

The plummeting stock price of the coffee company forced founder and chairman Robert Stiller and lead director William Davis to sell a combined 5.548 million shares of Green Mountain in the past week to satisfy a margin call.

In a statement, Green Mountain called the sales "inconsistent" with its internal trading policies. The two will no longer serve on any board committees and will not receive future payment for their services; however, they both will remain members of the board.

"These forced sales are disappointing and beyond the control of the company," Green Mountain said in a statement. "The board determined that it was in the best interest of the company and its shareholders for Mr. Stiller and Mr. Davis to relinquish their leadership positions on the board as well as their committee roles."

Green Mountain said it has appointed Michael Mardy as interim chairman of the board. He was previously a director and chair of the company's audit and finance committee. Hinda Miller, who served as chair of the company's corporate social responsibility committee, has been named the chair of the governance and nominating committee.

Stiller and Davis must settle all outstanding margin loans by the end of 2012, according to Green Mountain. The company said if all of their shares that are held in margin accounts or pledged as collateral were settled as of May 8, Stiller's stake would be down to 1.86 million shares, while Davis would own 36,598 shares.

The company declined to make the two men available for interviews.

Investors can borrow from banks or brokerages using their stock portfolios as collateral. Because of stock-market volatility, banks require investors to maintain a balance in their accounts that is a certain percent, or margin, of what they have borrowed. If stock prices fall sharply, investors must deposit more money into their margin accounts to maintain the required cushion.

A margin sellout, such as in the case of Stiller and Davis, occurs when a broker liquidates an account after a margin call fails to raise the cushion to the required level.

Green Mountain's stock has lost roughly half its value in the past week, triggering the margin call on Stiller's stake. Late last Wednesday the company lowered its profit guidance for the full fiscal year after it reported selling fewer brewers and K-cups than expected in its fiscal second quarter.

Stiller sold 5 million shares of Green Mountain's stock for $123.4 million Monday, shrinking the stake in the company he led for more than 25 years by more than a third. Davis, who has served as director of Green Mountain since its founding in 1981, sold 548,000 shares on May 4 and May 7.

The shares from Stiller's account and some of the shares from Mr. Davis's account were sold at a time when insiders at Green Mountain are unavailable to trade shares according to company policy. Davis also pledged an additional 204,000 new shares to his margin loan following the first of the year, after Green Mountain had amended its internal trading policy to prohibit new pledges.

Stiller, who founded Green Mountain in 1981 as a small cafe in Vermont, at one point owned nearly 45 million shares in the coffee company. Since 2000, he has been divesting ownership. Following the latest sale, Stiller currently owns 8.39 million shares, or a 5.4% stake.

As of March 27, Stiller was the second-largest shareholder of Green Mountain, with nearly 15 million shares, or a 9.7% stake, in the company, according to FactSet Research. Stiller also has a large stake in Krispy Kreme Doughnuts Inc. (KKD), owning about 12% of its outstanding shares.

As Green Mountain's chief executive, Stiller brought the company public in 1993, the same year it made an early investment in Keurig Inc. In 2006, Stiller led Green Mountain to fully acquire Keurig, making the company the dominant player in the single-serve coffee brewing market. Now nearly all of its revenue comes from the brewers, their K-cup coffee pods and other related accessories.

In 2007, Stiller stepped down as CEO and took on the role of chairman.

Green Mountain's stock took off in 2006 when it acquired Keurig. Its stock, trading below $5 at the time, steadily rose to the $30s by 2010 and then skyrocketed to more than $100 last August. The stock then started tumbling, thanks to skeptical comments by hedge-fund guru David Einhorn and the anticipation of new competition.

Green Mountain faces stepped up competition this autumn, when Starbucks Corp. (SBUX) plans to launch a high-end espresso brewer and two of Green Mountain's patents on K-cup technology expire.

During February, Stiller sold a total of 1 million of his Green Mountain shares, or about 6.9% of his stake at the time, for $66.3 million. The sales preceded rival Starbucks Corp.'s March 8 announcement that it would enter the single-serve coffee brewer market, news that sent Green Mountain's stock down nearly 16% the following day.

The February stock sale left Stiller about $13.7 million richer than if he had sold the shares after March 9, according to regulatory filings.

Starbucks says it informed Green Mountain of the news before it made its March 8 announcement, a fact that Green Mountain has acknowledged in prior statements. Stiller's trades weren't part of a pre-programmed trade, which is designed to prove executives aren't basing trades on inside information.

Tuesday, Green Mountain shares rose 8.6% to $26.38, recovering a bit of their recent loss. After the news about Stiller and Davis, Green Mountain shares fell 3.2% to $25.55 in after-hours trading.

Before Tuesday, the stock had fallen 47% since the company's earnings on Wednesday and 78% from its high in September.

During the financial crisis, plummeting stock prices set off a wave of margin calls. Among the prominent executives caught up in the squeeze were Sumner Redstone, the chairman of Viacom Inc. (VIA, VIAB) and CBS Corp. (CBS), and Chesapeake Energy Corp. (CHK) Chief Executive Aubrey McClendon, who had to sell most of his stake in Chesapeake at a significant loss.